Of the coal or natural gas utility merger and acquisition deals done in the last 18 months, there were probably 10 times that amount worked on but not closed, John Dingle, Partner at management consulting firm Thorndike Landing told the Platts Utility M&A Conference held June 25th – 26th in New York.

Why have so few deals been struck? It is a challenging time for utilities, US natural gas prices are at some of the lowest levels in about a decade, which is a challenge because of their drag on power prices and the resulting limits on fuel diversification attempts. Increasingly stringent environmental regulations for coal plants and decreased power demand stemming from the sluggish economy and a warm winter have all helped sour the deal-making atmosphere.

The long-term future natural gas price curve is below recent average levels and Carl Cho, Director of Citigroup’s Power team said their long-term outlook includes an average Henry Hub US benchmark price of $5.25/mmbtu.

We are at the limits of Eastern US coal plant retirements,” – Zenker

Coal plant retirements are expected to peak around 2015, said Cho, and while there has been lots of permitting activity for new gas-fired plants, actual construction has been delayed, partially due to persistent regulatory and economic uncertainty.

Cho added that over the short to medium term, pipeline throughput capacity will limit incremental gas-fired generation, until pipelines and the associated infrastructure needed to transport gas from producing centers to markets can be further built out.

“We are at the limits of Eastern US coal plant retirements,” and the next wave will be in Texas and western states, said Michael Zenker, Managing Director of North American Gas, Power and Global LNG at Barclays.

The bank estimates that US natural gas will remain in a $4/mmbtu price environment over the long term and at that price point, gas will continue to compete with coal in the power generation sector.

However, very few coal plants have changed hands over the past 18 months. There have been no comparable deals for coal plants recently, said Dingle.

Mark Florian, Managing Director and Head of Infrastructure at private equity giant First Reserve, said he sees Asian appetite in the market and would not be surprised to see a Chinese buyer team up with a sovereign wealth fund to purchase a US power asset.

No Rush to Export LNG

The conversation veered toward the prospect of US LNG exports during the question and answer portion of the panel. Despite the current excitement about exporting LNG from the US to higher value overseas markets, it’s possible that few export projects will ultimately materialize.

“Look at all the LNG import facilities that were on the books 5 to 10 years ago and how many got built?” asked Dingle, who estimated 3 terminals from about 48 under consideration were constructed.

Zenker said the US currently has about 20 billion cubic feet per day of LNG regasification capacity, and given existing proposals received to date, companies are looking to build around 20 billion cubic feet per day of liquefaction capacity, a volume that appears unlikely to be reached. The US imported slightly less than 1Bcf/d of LNG in 2011 and Barclays expects US LNG exports to peak at approximately 4Bcf/d.